Libya - Overview of economy

After about 5 centuries of colonization by the Ottoman Empire, Italy,
Britain, and France, Libya became an independent monarchy in 1951. In
1969, Colonel Muammar Qadhafi staged a coup (an internal military
uprising against a government) and established a republic. During its
first decade, the new regime
nationalized
all foreign businesses and weakened the
private sector
through nationalization, confiscation, and "spontaneous"
seizures of private factories by workers. The private sector was
confined to
retail
trade, but the shortage of investments in the late 1980s forced the
Libyan government to ease laws restricting its activities. Nevertheless,
the private sector is still limited to small-scale activities in
agriculture, retail trade, and manufacturing. Various legal and
practical restrictions have prevented its rapid expansion, including the
absence of respect for private property reflected in the periodic arrest
of merchants and shopkeepers, and confiscation of their businesses.

Libya has a single-product economy, which survives on exports of
hydrocarbons (oil, gas, and their refined products), accounting for 94
percent of exports in 1998. Thanks to these exports, since the 1960s
Libya has had
trade surpluses
and a small
foreign debt
(US$3.9 billion

in 1999) compared to its
foreign exchange reserves
(US$7.28 billion in 1999). However, the economy is highly vulnerable to
fluctuations in oil prices, which directly affect government revenues.
The Libyan government has been successful to a great extent in creating
an
infrastructure
, but it has failed to establish viable industry, agriculture, and
service sectors. In particular, it has failed to diversify the economy
through establishing desired heavy industries. As a result, the Libyan
economy is still an oil-based economy.

Internal and external factors have prevented the economic growth of
Libya. Inconsistent planning, frequent changes in government economic
policies, and the government's weakening of the private sector
have been the major internal factors. External factors include periodic
low oil prices, which have deprived the Libyan government of financial
means needed to implement fully its development plans. In addition, the
imposition of American
sanctions
in the late 1970s, 1980s, and 1990s on Libya for its alleged
involvement in terrorism has limited Libya's income and its
access to foreign technology and investment. Additionally, the
UN-imposed sanctions on Libya in the 1990s over Libya's refusal
to hand over for trial 2 Libyan suspects implicated in the 1988 bombing
of a Pan American jetliner further worsened its economic situation.
Libya's improving relations with Europe following the suspension
of UN sanctions in 1999, and high oil prices have eased pressure on its
economy as reflected in a jump from a 2 percent growth rate in 1998 to
5.4 percent in 1999, and to an estimated 6.5 percent in 2000.

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